“It’s the first time, after several months, that we have put new capital-raising efforts on the agenda,” Markus Hüwener, CEO of German carbon asset managers First Climate, told Carbon Finance.

But Hüwener said that to attract investors, fund managers would need to change their focus. “I think the old approach of raising pure yield-oriented carbon funds is over,” he said. “What we’re doing is mixing the carbon component with equity investments.” This, Hüwener said, allows the funds to capture proceeds from alternative revenue streams, such as power sales from renewable energy carbon projects.

“A lot of projects lost their financing in 2009, and they need the equity part to get things going,” he said.

London-based asset manager Climate Change Capital has followed this approach of equity investment in carbon projects for its €750 million ($1.1 billion) carbon fund – the largest fund in the market. But following the close of its investment period at the end of 2009, CEO Shaun Mays said the company was mulling alternative ways to invest in carbon-reduction projects.

“We will be looking to deploy capital going forward, but it may not be in the form of a fund. Having been in that market for so long, we’ve got a really strong pipeline of projects that cover the whole spectrum of renewable energy, energy efficiency, etc,” he told Carbon Finance this week.

“While carbon credits attach to those, the underlying projects themselves are valuable. We are looking at what are we doing with those, from a carbon point of view, and an underlying point of view.”

Hüwener said that failure to reach an international climate deal for after 2012 in Copenhagen does not alter any plans now, as the EU has indicated that credits from projects registered before the end of 2012 will be eligible for use in Phase III of its emissions trading scheme, which runs 2013-20.

“There is a good demand for pure compliance funds,” he said, adding that the European Investment Bank’s (EIB) €125 million Post 2012 Carbon Credit Fund, which his company advises, expects to be fully invested in the first half of this year.

“We have an advanced pipeline in relation to Kyoto credits, and are therefore not so much affected by the post-2012 discussion,” said the European Bank for Reconstruction and Development’s (EBRD) Jan-Willem van de Ven, head of the secretariat for the EBRD-EIB sponsored €190 million Multilateral Carbon Credit Fund (MCCF). “Any outlook however may help to keep sponsors interested in this market.”

Reforms to the Clean Development Mechanism (CDM) agreed in the Danish capital last month should also help the sector. Tomas Otterström, Helsinki-based deputy CEO of asset management firm GreenStream Network, said he was “hopeful” about improvements to the CDM. However, he added that while “there are some good signs” in Copenhagen about reforms, they didn’t go far enough.

“It’s high time to simplify CDM modalities for small projects and their implementation,” Otterström said. “However, this won’t solve the problems, and the Kyoto period ends pretty soon.” He noted that delays in the registration process have grown substantially, and that, as of 2008, some 60% of CDM projects having started validation were expected to be registered, down from around 90% in 2005.

But Otterström was positive on the prospects for 2010. “This year is the year that Kyoto carbon acquisition vehicles should be able to get their contracts into place,” he said. “An advantage of our funds is that we are able to contract both Kyoto and post-2012 credits.” GreenStream is also looking into bringing innovative carbon investment vehicles to the market, he said without elaborating.

Of more concern is the fate of Joint Implementation (JI) projects, with van de Ven noting that such projects have “a finite life” at this point. He said that the MCCF – which had ringfenced €40 million of its capital for Assigned Amount Unit purchases underpinned by Green Investment Schemes (GISs) – is looking at “more structured approaches”, such as more GISs. The fate of JI in Russia remains to be seen, with van de Ven saying: “Everyone is hopeful, but the proof will be in the pudding, and the eating of it.”


Source: www.carbon-financeonline.com